Carbon credit concerns amid lemons market fears

Academics have called for a root and branch rethink of the carbon credits system amid concerns that the majority of carbon offset schemes are significantly overestimating the levels of deforestation they are preventing.

An international team of scientists and economists led by the University of Cambridge and VU Amsterdam found that millions of carbon credits are based on crude calculations that inflate the conservation successes of voluntary REDD+ projects.

It added, consequently, many tonnes of greenhouse gas emissions considered “offset” by trees that would not otherwise exist have, in fact, only added to our planetary carbon debt, say researchers.

The university team said REDD+ schemes generate carbon credits by investing in the protection of sections of the world’s most important forests – from the Congo to the Amazon basin. These credits represent the carbon that will no longer be released through deforestation.

Organisations and individuals can then offset their own carbon footprint by purchasing credits equivalent to a given quantity of emissions.

Carbon credit markets has expanded rapidly in recent years. Over 150 million credits originated from voluntary REDD+ projects in 2021, with a value of $1.3 billion. Some companies use carbon offsetting to claim progress towards “net zero” while doing little to reduce greenhouse gases, say researchers.

The team behind the latest study argue that the booming trade in carbon credits may already be a type of “lemons market”: where buyers have no way of distinguishing quality, so some sellers flood the market with bad products, leading to a breakdown of trust and ultimately market collapse.

“Carbon credits provide major polluters with some semblance of climate credentials. Yet we can see that claims of saving vast swathes of forest from the chainsaw to balance emissions are overblown,” said study senior author Prof Andreas Kontoleon, from Cambridge’s Department of Land Economy. “These carbon credits are essentially predicting whether someone will chop down a tree and selling that prediction.”

Kontoleon explained that overestimations of forest preservation have allowed the number of carbon credits on the market to keep rising, which in turn supresses the prices.

“Potential buyers benefit from consistently low prices created by the flood of credits. It means that companies can tick their net zero box at the lowest possible cost,” he said. “These projects have already been used to offset almost three times more carbon than they have actually mitigated through forest preservation.”

REDD+ is a loose acronym for “Reducing emissions from deforestation and forest degradation in developing countries”. Currently, credits from voluntary “avoided deforestation” projects are issued based on predictions of tree loss that would have occurred without the REDD+ scheme.

Researchers say these calculations – which take historical deforestation averages or trends, sometimes from over a decade ago, across a wide region that usually includes the REDD+ site – are often far too simplistic.

The latest study looked in detail at 18 REDD+ projects in five tropical countries: Peru, Colombia, Cambodia, Tanzania, and the Democratic Republic of Congo.

While a total of 26 REDD+ project sites were investigated, only 18 had sufficient “baseline” deforestation data available to allow for useful comparative analysis.